Full Judgment Text & Judicial Ruling

1965 P T D 651

1965 P T D 651

[Bombay (India)]

Before Tambe and Abhyankar, JJ

MATHURADAS B. MOHTA

Versus

COMMISSIONER OF INCOME-TAX, POONA

Income-tax Reference No. 129 of 1963, decided on 27th July 1964.

Appeal to Appellate Assistant Commissioner-Appeal against penal interest on advance tax-Whether competent-Scope of jurisdiction of Appellate Assistant Commissioner-Assistant Commissioner whether can give direction in relation to different assessment year-Remittances-Remittance of share allotted in partition of Hindu undivided family-Whether assessable-Indian Income-tax Act, 1922, Ss. 4 (1) (b) (iii), 18-A (8), 30 & 31.

The jurisdiction of the Appellate Assistant Commissioner under section 31 is strictly limited to the assessment order of that particular year under appeal. The Appellate Assistant Commissioner is competent to decide whether a particular item or a particular amount was income of that assessment year, but he has no jurisdiction further to decide in that appeal the appropriate year in which the said income would fall.

Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das (1964) 52 I T R 335 (S C) fol.

On a general partition of a Hindu undivided family the assessee received certain amounts as his share and brought them from non-taxable to taxable territories. On the question whether any part of such amounts were assessable as remittances of income:-

Held, an amount which forms part of the profits of a Hindu undivided family undergoes a change in character when it is received by a member of the family as his share on a general partition. It does not retain its original character of profit or income and is not taxable.

Veerappa Chettiar v. Commissioner of Income-tax (1950) 18 I T R 396 fol.

Commissioner of Income-tax v. Annamalai Chettiar (1944) 12 I T R 226 not fol.

The amount of interest determined under section 18-A(8) is a tax within the meaning of the Act. An assessee would have a right to file an appeal to the Appellate Assistant Commissioner against an order under section 18-A (8) by virtue of the clause "denying his liability to be assessed under the Act" occurring in section 30.

Abraham v. Income-tax Officer, Kottayam (1961) 41 I T R 425 (S C) and Commissioner of Income-tax v. Bhikaji Dadabhai & Co. (1961) 42 I T R 123 (S C) applied.

Commissioner or Income-tax v. Jagdish Prasad (1955) 27 I T R 192 ref.

STATEMENT OF CASE

By these two reference applications, which are consolidated for the sake of convenience, the assessee requests the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the Tribunal's orders in I. T. As. Nos. 7330 and 11075 of 1958-59. Inasmuch as, in

our opinion, questions of law do arise out of the aforesaid orders of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Bombay under section 66 (1) of the Indian Income-tax Act, 1922.

2. These two reference applications arise out of the order of the Tribunal in I. T. A. No. 7330 and I. T. A. No. 11075 of 1958-59. These appeals were heard along with six other appeals and relate to the assessment years 1947-48 and 1950-51, the corresponding accounting periods being the year ending Diwali 1946 (November 5, 1945 to October 24, 1946), and the year ending Diwali 1949, respectively. Some of the appeals were by the Department and others by the assessee. In particular, I. T. A. No. 7330 was by the assessee and I. T. A. No. 11075 was by the Department. The status taken in the two appeals under consideration was that of individual. For the purpose of understanding the position, we may state that the same person figures in two different capacities, the individual assessee, Mathuradas Mohta, to whom we shall hereinafter refer to as M-I, and the assessee Hindu undivided family, which we shall hereinafter refer to as M-H.

3. In order to properly appreciate the contentions raised in these appeals we may set out the history of these assessments. At one time Mathuradas Mohta was being assessed as karta of the Hindu undivided family consisting of himself, his wife and three sons. In the course of assessment proceedings for the assessment year 1944-45 (the previous year being S. Y. 1999, i.e., November 9, 1942 to October 29, 1943), a claim under section 25-A was made. It was to the effect that since Diwali 1944, or to be more precise on October 16, 1944, a complete partition took place amongst Mathuradas, his wife and their three sons and hence, an order under section 25-A was claimed. The said family used to derive income from a textile mill known as R. S. Rekhchand Mohta Spg. & Wvg. Mills Ltd., Hinganghat, ginning and pressing factories, banking business and cloth shops selling mill yarn and cloth at various places, house properties situated at several places, including one residential house at Bikaner. It also owned jewellery, gold and silver ornaments, etc. It was claimed that the said family property was completely partitioned by metes and bounds. The alleged complete partition was supported by a deed of partition executed on 30th December 1944, and registered on January 2, 1945. The Income-tax Officer, however, took the view that the said alleged complete partition was not a genuine one and that the partition deed was not intended to be acted upon. Hence, the claim under section 25-A was rejected and the assessee family continued to be assessed in that status on the income derived from several sources. The matter was brought in appeal to the Tribunal, in several appeals including I. T. As. Nos. 3596, 3960, 3961 and 3962 of 1948-49, relating to the assessment years 1944-45 to 1947-48, both inclusive. By its order made on October 13, 1949, the Tribunal held "that the alleged partition is a bogus one and was not to be acted upon." Hence, the refusal of an order under section 25-A was upheld. This finding of the Tribunal will hereafter be referred to as " the first finding". Applications under section 66 (1) failed. Under section 66 (2) the High Court directed the Tribunal to refer the following question to it for the assessment years 1944-45 to 1947-48:

"Whether there is in this case any legal evidence to support the inference of the Tribunal that the partition in question was not genuine and meant to be acted upon?"

The High Court at Nagpur answered the said question on January 22, 1954, in the affirmative and thus against the assessee, M-H. Appeal was taken therefrom to the Supreme Court, being Civil Appeal No. 139 of 1956.

4. In the meantime, assessments for the assessment years 1948-49 and 1949-50 were also completed upon the said Hindu undivided family. Once more the claims made under section 25-A, on the same basis on which it was made in the course of the assessment proceedings for 1944-45, were rejected and once more the matters were brought in appeal to the Tribunal in I. T. As. Nos. 4413 to 4415 of 1950-51. On the said occasion, some additional facts were established before it and some additional material was also produced. In view of the additional data, the Tribunal on this occasion came to the conclusion that the partition claimed to have been made on October 16, 1944, was a genuine one and that the partition deed executed on December 30, 1944, was intended to be acted upon by the parties to it. It, however, found that the dwelling house of the family at Bikaner remained undivided though all the property was divided amongst the several parties to the partition as required by the provisions of section 25-A. It, therefore, gave the following direction:

"This being our view, we must cancel the assessments made on the family for the years 1948-49 and 1949-50. These assessments have been made on the family. Separate assessments will have to be made on Seth Mathuradas and the other members of the family. We also direct that fresh assessments be made on the Hindu undivided family in respect of its income from the Bikaner house."

5. In view of the fact that the whole of the family property was not divided for the purposes of section 25-A, the Tribunal upheld the Income-tax Officer's refusal to make an order under section 25-A (1). In other words, the Tribunal's view was that there did take place a genuine, but partial partition and all the erstwhile family property except the residential house at Bikaner went out of the family property to certain specified members of it. According to the deed of partition, the textile mill business (hereafter referred to as the Hinganghat Mills), the ginning and the pressing factories, etc. the banking business, several cloth and yarn selling shops, etc., went to the share of Mathuradas at a valuation and he became indebted to four other members of the family to the extent of Rs. 8,13,460 each. Several house properties were allotted specifically to several members of the family. It is not necessary to go into further details about the division of the erstwhile family property. This finding given by the Tribunal for the assessment years 1948-49 and 1949-50 on February 20, 1952, will hereafter be referred to as "the second finding". The said finding was not accepted by the Department. Applications under section 66 (1) failed but the High Court directed the Tribunal under section 66(2) to refer the following question to it for the assessment years 1948-49 and 1949-50:

"Whether there was any legal evidence before the Tribunal for the finding that a partition was effected in 1944 and it-was genuine?"

On this occasion the High Court answered the said question on October 29, 1955, in the affirmative, i.e., in favour of the assessee, M-H. The Commissioner took an appeal to the Supreme Court therefrom, vide Civil Appeal No. 207 of 1959. It, now remains to add that by its order of November 22, 1960, the Supreme Court rejected both these appeals.

6. The position, therefore, is that the first finding given by the Tribunal was upheld and will be binding upon the parties in regard to assessments in respect of which that finding was given by it. Similarly the second finding of the Tribunal is now confirmed by the Supreme Court and it will also be binding upon the parties in the assessment for which that finding was given by the Tribunal. The point that, however, arose was obviously that the two findings given by the Tribunal could not be reconciled. While the said two findings were being challenged by the persons concerned before higher Courts, asessments were being made according to the view then prevailing and naturally these assessments were being disputed by the parties concerned. It was in those circumstances the Tribunal had before it some assessments made in accordance with the first finding and some made in accordance with the second finding of the Tribunal. Both the findings given by the Tribunal and ultimately confirmed by the Supreme Court by its order made on November 22, 1960, were binding upon the parties concerned in respect of all assessments for which those findings were given and also in regard to all other assessments that had become final and conclusive. In regard to these assessments which were made either on M-H or M-I or appeals filed by the Department which had not become final and conclusive, the Tribunal considered that the second finding of the Tribunal would prevail and those pending assessments and appeals would have to be decided on the footing that a genuine partial partition did take place on October 16, 1944, that the erstwhile Hindu undivided family property was divided amongst the several members except the dwelling house at Bikaner as set out in the partition deed of December 30, 1944, and that the several members became owners of the several assets allotted to them as on October 16, 1944. The Tribunal, therefore, proceeded to decide the several contentions in the several appeals on the basis of the said finding.

7. I. T. A. No. 7330 was an appeal preferred by the assessee individual. The main contentions of the assessee in this appeal were: (1) there was no justification to initiate action under section 34 to assess him individually for the assessment year 1947-48, and (2) that the direction given by the Appellate Assistant Commissioner in his order to tax certain income arising out of the sale of Hinganghat Mills for the assessment year 1948-49 was bad as the said assessment was not before him in the appeal and that he could not pass any order or give any direction in respect of the said assessment year.

8. In appeal by the Department, i.e., 11075, the two contentions taken were (1) that the Appellate Assistant Commissioner erred in deleting the remittance of Rs. 97,945 from States (Rs. 51,035 from Rejnandgaon and Rs. 46,910 from Bikaner) and (2) the Appellate Assistant Commissioner erred in deleting the penal interest of Rs. 24,214-11-0 as no appeal lay to the Appellate Assistant Commissioner in respect of the penal interest and as such his order was without any jurisdiction.

9. After effecting a partial partition of the property on October 16, 1944, the said Hinganghat Mills together with several other businesses fell to the share of M-I. Thereafter, he ran the said business for sometime as his own personal business. He promoted a company known as Rai Saheb Rekhchand Mohta Spinning & Weaving Mills Ltd. and on October 23, 1946, he entered into an agreement with the said limited concern for selling to it, the plant, machinery, office furniture, etc., buildings, structures, outhouses, etc., together with the benefit of pending contracts and engagements and all the property that he had in connection with the said textile mill business. The total consideration was agreed upon at Rs. 47.5 lakhs to be satisfied by certain fully paid up ordinary and preference shares. The said agreement of sale specifically provided as follows:

"The vendor shall give possession of the mill on the Kartik Sud 1, Samvat 2003, dated 25th October, 1946"; and "that the sale-deed shall be completed within four months from today."

The said agreement of sale also sets out the values of immovable properties at Rs. 14-8 lakhs and the balance was attributed to movable properties. In due course, a sale-deed was executed on January 8, 1947, and it was registered on January 11, 1947. After reciting the facts contained in the agreement of sale made on October 23, 1946, the said sale-deed specifically referred to the fact that it related to immovable properties only valued at Rs. 14-8 lakhs. It also stated that the total consideration of Rs. 47.5 lakhs was to be paid by fully paid up shares and that "till such time of allotment of shares by the purchaser-company to the vendors, hereinbefore mentioned, the said sum of 47,80,000 shall be a loan due to the vendors by the purchaser-company " and that it would carry interest at 6% per annum. It was also common ground that actual possession of the said mills was given, as agreed in the agreement of sale, on Kartik Sud 1, Samvat 2003, i.e., the first day of the previous year relevant to the assessment year 1948-49.

10. On these facts and particularly having regard to the fact that the board of directors of the limited company unanimously resolved on October 23, 1946, to purchase the mills, the Income-tax Officer contended that the effective date of sale of the mills was October 23, 1946, notwithstanding that possession was to be given, and was actually given, to the limited concern on October 25, 1946, and the sale-deed in regard to immovable properties was executed only on January 8, 1947. The Appellate Assistant Commissioner rejected this view of the Income-tax Officer for the reasons given by him. He also held:

"As regards the second contention that the capital gains is not taxable for this assessment year, it is pleaded by Shri Mulla that the Income-tax Officer failed to appreciate the fact that the deed dated October 23, 1946, was only an agreement for sale of mills to the limited company and the sale took place actually on October 25, 1946, i.e., on the 1st day of Samwat year 2003, when possession was given. He further pleads that up to October 24, 1946, the income of the mills has been assessed in the hands of Seth Mathuradas and this fact was verified by the Income-tax Officer from the cash book produced of the mills prior to sale to the company, that the cash book was written up to October 24, 1946. Shri Mulla points out that even muster rolls produced before the Income-tax Officer showed khat attendance of the labourers was marked therein up to October 24, 1946. Also from the limited company's books produced before me, an entry is shown that the company began to work from October 27, 1946. There is also an entry on October 25, 1946, regarding the cash. I may state here that there is one fact to be remembered regarding the intention of the parties on which stress is laid by the Income-tax Officer. Since Samvat year begins from October 25, 1946, it is but natural that anybody would start the business from the first of the year and not on odd day, i.e., 2 days before the close of the year, which would ordinarily cause inconvenience both to the vendor and the vendee. As regards the case cited by the Income-tax Officer in the Miscellaneous Civil Case No. 47, I have now obtained this judgment (which is on my file); I find therefrom that the facts in that case are quite different. In that case a limited company styled Perfect Pottery Co. Ltd. agreed to purchase a colliery under an agreement dated March 31, 1947. It was provided that the vendors were to sell and the purchasers were to purchase as from April 1, 1947, and also the purchasers were to take over the business as from April 1, 1947. Thus, it is evident that a distinction has been made there. This is, however, not enough in that case. The possession was kept by the vendors up to the date of completion of sale viz., December 31, 1947, and in the meantime, the vendors carried on business on behalf of the purchasers. During this period, there was a loss and the company claimed that the loss belonged to it. The Department disallowed the loss while the High Court held that the vendors were mere agents on behalf of the purchasers and it was the purchaser who was entitled to the loss. Accordingly, the loss was allowed against the income of the vendors, viz., Perfect Pottery Co. Ltd. It will thus be seen that the facts in the case of the appellant are quite different. From the books produced both of the company and of the vendor, it is clear here that the company took possession as from October 25, 1946. In this connection, I may also mention that the Tribunal, in its order dated February 20, 1952, in respect of the assessment years 1948-49 and 1949-50, has held in paragraph 5 that the mills were sold by the appellant to the private limited company on October 25, 1946. Even the Appellate Assistant Commissioner after going into the facts of the case of the Hindu undivided family gave a finding that the sale was effected from October 25, 1946-Kartik Sud-1, S. Y. 2,003. In view of this position, I hold that the capital gains tax and profits under section 10 (2) (vii) are only assessable for the assessment year 1948-49. I, therefore, direct the Income-tax Officer to tax these incomes as capital gains and profits for the assessment year 1948-49. In the circumstances, the amount of Rs. 3,13,707 plus Rs. 29,65,217 will be deleted and the assessment will be reduced accordingly."

Following the decision of the Supreme Court in the case of Commissioner of Income-tax v. Bhurangya Coal Co. ((1958) 34 I T R 802), the Tribunal rejected the Department's contention and confirmed the view taken by the Appellate Assistant Commissioner. In the result the profit on the sale of the mills (partly arising under section 10 (2)(vii), second proviso, and partly under section 12-B) was held to be assessable in the hands of M-I in accordance with the second finding given by the Tribunal on February 20, 1952, and on the footing that the sale took place on October 25, 1946. The result was that the assessee's second contention in his appeal, I. T. A. No. 7330 was rejected. The Tribunal also held that having regard to the facts set out above the Appellate Assistant Commissioner was justified in giving a direction as he did.

11. The Appellate Assistant Commissioner in dealing with the first contention of the assessee observed as follows:

"As the Tribunal gave a finding in its order dated February 20, 1952, that the partition took place as from October 16, 1944, it was necessary to bring to tax the income which belonged to the appellant individually after partition. Accordingly, the Income-tax Officer has re-opened this case for the assessment year 1947-48 on the basis of the findings of the Tribunal for the assessment years 1948-49 and 1949-50. The appellant who became the owner of the mills on partition from the year 1944, sold the same to a limited company under an agreement of sale dated October 23, 1946, and the sale-deed dated January 8, 1947, to Rekhchand Mohta Spg. & Wvg. Mills Ltd. Under clause 4 of the agreement for sale, it was provided that the possession of the mills was to be given on October 25, 1946. The Incometax Officer raised the point regarding the effective date of the sale of assets for the purpose of arriving at the capital gains. In this connection, I may state that in the case of the original assessment for the assessment year 1948-49, in respect of the Hindu undivided family which was then not recognised by the Department as partitioned, the facts regarding this capital gains were gone into when the' amount of capital gains was computed and also the date of sale was ascertained by the Income-tax Officer to be October 25, 1946, which fell for the assessment year 1948-49 for which year the capital gains was taxed. However, for the year under appeal, the Income-tax Officer found that the agreement of sale was dated October 23, 1946, while the sale-deed was dated January 8, 1947. Besides, clause 4 of the agreement of sale provided that the vendor should give possession of the mills on October 25, 1946, to the company. As this was not clear to the Income-tax Officer he issued a notice to the company to state the date on which the assets of the mills were sold by the appellant to the company. The company replied that the agreement of sale was entered into on October 23, 1946, the sale-deed was executed on January 8, 1947, and that the possession was given on October 25, 1946. The Income-tax Officer believed that there was no direct reply, as in his opinion he came to the finding that according to the intention of the parties the sale took place as from October 23, 1946. In this connection, the Income-tax Officer relied upon the Nagpur case in Miscellaneous Case No. 47 of 1953, dated March 23, 1955, and concluded that the sale took place on October 23, 1946, and accordingly he took the same figure of capital gains of Rs. 32,78,924 as adopted in the Hindu undivided family's case for the assessment year 1948-49. He, however, bifurcated the above amount into the profit taxable under section 10(2) (vii) at Rs. 3,13,707 -and capital gains at Rs. 29,65,217. He took the figure of depreciation admissible from the year 1944-45 from which date the partition has been subsequently recognised and calculated it up to 1947-48 so as to arrive at Rs. 3,13,707 as profit under section 10 (2)(vii). Accordingly, he added Rs. 29,65,217 as capital gains and Rs. 3,13,707 as profits under section 10(2) (vii). The Income-tax Officer also added the income which the appellant was entitled to receive on partition as an "individual". This is now contested in appeal by Shri N. R. Mulla, solicitor, who represents the appellant.

(4) As regards contention No. 1, it is pleaded by Shri Mulla that the appellant himself made a return on September 10, 1947, and the Income-tax Officer was in law bound to complete the assessment on or before March 31, 1952. As no such order was passed by him, it is submitted by Shri Mulla that it is not now open to the Income-tax Officer to make any assessment whatsoever. It is further pleaded by Shri Mulla that the Income-tax Officer has not given any reasons for re-opening the assessments. In this connection, I may state that the appellant was issued a notice by the Department under section 22 (2) on the same number as adopted for the Hindu undivided family in the general index register, but the appellant submitted the same return showing the status as an "individual", which all along was his contention on the strength that there was a partition of joint Hindu family properties as from October 16, 1944. This was not a case of voluntary return filed as an individual, but it was a return submitted in pursuance of notice under section 22 (2) against the joint Hindu family. I, therefore, do not accept the plea of Shri Mulla that it was a voluntary return. All that has happened is that the Income-tax Officer…

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